Downing Healthcare - Results to 30.6.98
October 27 1998 - 12:05PM
UK Regulatory
RNS No 8907a
DOWNING HEALTHCARE PROTECTED VCT PLC
27th October 1998
DOWNING HEALTHCARE PROTECTED VCT PLC
Preliminary results for the period ended 30 June 1998
The Directors are pleased to announce the preliminary results,
subject to final audit, of the Company for the period ended 30
June 1998.
Financial highlights
Period to 30 June 1998 Pence per Share
Net asset value per share at 30 June 1998 94.40
Gross dividend for the period to 30 June 1998
(inclusive of the associated tax credit of 1.25 pence)
6.25
Total shareholder value 100.65
Net assets #9.3 million
Company structure
Downing Healthcare Protected VCT plc is a venture capital
trust (VCT) established to provide individual shareholders
with an opportunity to invest in unquoted companies which own
and operate care homes and which meet the qualifying company
requirements of the VCT legislation. This structure is
intended to enable shareholders to take advantage of the tax
benefits available for investing in VCTs. The Company has
provisional approval from the Inland Revenue as a VCT and is
expected to receive full approval in 1999.
The Company was incorporated on 27 January 1997 and is
registered as an investment company under section 266 of the
Companies Act 1985. Its issued share capital is wholly in the
form of ordinary shares.
Investment objective
The Company's investment objective is to provide shareholders
with an attractive dividend return on their investment, whilst
providing a protected "asset backed" environment for their
capital.
Investment strategy
Initially, 100% of the Company's net proceeds were invested in
bank deposits and fixed income securities, including gilt-
edged stocks and corporate bonds. Investments in care home
businesses are funded through realisations of fixed income
securities and it is intended to invest over #6.5 million in
such businesses by 30 June 1999.
The Company makes investments in the form of ordinary shares,
preference shares and loan stock in special purpose companies,
which own and operate care homes. Each investee company owns
freehold or long leasehold property and has little or no
borrowings i.e. an "asset backed" investment. 50% of the
ordinary shares in each investee company is owned by the
Company and the balance is owned by a third party. A
professional care home manager is appointed to manage each
care home.
The Company has been active in the period and has made good
progress in building up a portfolio of investments in care
home businesses.
Share issues
The Company raised #9.8 million in Spring 1997. After issue
costs, the net proceeds of the issue were approximately #9.3
million, representing 95p per share.
Qualifying investments
In the period to 30 June 1998, a total of approximately #2.5
million was invested in three care home businesses.
Subsequent to the period end a further #940,000 has been
invested in a fourth care home business, for which #60,000 had
been invested prior to the period end. These investments,
together with anticipated follow on investments, will bring
the total invested by the Company to over #4 million which
equates to over 60% of the VCT qualifying target. The
Company, therefore, only needs to make a further two or three
investments to achieve its VCT qualifying target by 30 June
1999.
It is the policy of each care home business, in which the
Company invests, to establish appropriate care and maintenance
standards. This process can affect profitability in the short
term, immediately following each acquisition. However, the
Directors consider this policy will enhance the value of each
business over the medium term.
Non-qualifying investments
The non-qualifying investments have been, and continue to be,
managed by Cazenove Fund Management Limited. The returns to
date from these investments have been in line with our
expectations, as set out in the prospectus, although rates
have started to fall and may fall further.
Results and dividend
Gross revenue for the period was #808,000. Net revenue after
taxation was #531,000 and net assets per share were 94.4p.
Interim dividends totalling 2.4p per share net were paid
during the period. The Board has decided to recommend a final
net dividend payment of 2.6p per share. These dividend
payments total 5p net which, combined with the receipt of the
associated tax credits, means shareholders will have received
tax free dividends of 6.25p per share in respect of the
Company's first period.
The proposed final dividend will be paid, subject to
shareholder approval, on 30 November 1998, to shareholders on
the register on 6 November 1998. Once again, it is intended
that this dividend should be paid gross to shareholders from
whom valid enduring declarations have been received.
Purchase of own shares
The Board is conscious of the fact that, as in the case with
many other VCTs, the Company's shares trade at a discount to
their net asset value. The Board believes that this is
principally due to the illiquidity of the shares resulting
from the requirement that shareholders must hold their shares
for at least five years in order to retain their tax benefits.
The Company has a policy of purchasing its own shares in order
to reduce this discount, but only when such purchases are to
the advantage of the Company and its shareholders taken as a
whole. No shares were purchased during the period. A
resolution to continue with this policy, which was approved at
last year's AGM, is proposed for the forthcoming AGM.
Outlook
The Board continues to receive a strong flow of investment
opportunities and expects steady investment progress to 30
June 1999. The Board now considers that the initial target of
investing approximately 75% of net proceeds in care home
businesses should be raised to approximately 85%. This will
mean that the Company will probably continue to make
investments in care home businesses after 30 June 1999. This
shift of emphasis is due to two reasons: interest rates on
fixed income securities have fallen and are expected to
continue falling; and it is prudent to invest well over the
minimum 70% target for qualifying investments set out in the
VCT legislation, in order to preserve the beneficial tax
status of the Company.
Review of investments
The following investments were held at 30 June 1998.
Portfolio
Cost Valuation by value
#'000 #'000 %
Qualifying investments
Kimbolton Lodge Limited 600 600 6.5
Evedale Care Home Limited 1,000 1,000 10.9
Downing Harnham Croft Limited 875 875 9.5
Downing (Acacia House) Limited 60 60 0.7
2,535 2,535 27.6
Non qualifying investments
Fixed Income Securities
Marks & Spencer Finance 73/8%
bonds 1998 502 498 5.5
General Electric Capital Corp
71/4% bonds 1999 250 249 2.7
Harvard University 67/8% bonds 2000 248 246 2.7
Province of Ontario 67/8% bonds 2000 493 496 5.4
Sainsbury 81/4% bonds 2000 511 508 5.5
2,004 1,997 21.8
Government Securities
Exchequer 12% stock 1998 918 915 10.0
Treasury 9 1/2% loan stock 1999 1,215 1,213 13.2
Treasury 6% stock 1999 1,188 1,184 12.9
Treasury 13% stock 2000 1,344 1,333 14.5
4,665 4,645 50.6
Total 9,204 9,177 100%
Kimbolton Lodge Limited
Kimbolton Lodge is a dual registered nursing home situated
very close to the centre of Bedford. It is registered for 44
beds and has been operated profitably for a number of years by
Mr & Mrs Rowe. This home was identified by the Directors
through direct marketing. The Rowes were impressed by our
team, including our preferred care home manager Independent
Healthcare Initiative, and reinvested #600,000 of their sale
proceeds for 50% of the share capital.
Evedale Care Home Limited
Evedale Care Home is a new home which opened in March 1997.
It is a 60 bed purpose built home, which was also not on the
market, owned by Principal Healthcare Limited and was
introduced by Laing & Buisson, our healthcare consultants. At
the time the purchase was negotiated in September 1997, the
home had approximately 30 residents and now it is virtually
full.
Downing Harnham Croft Limited
Harnham Croft is a care home registered for 49 beds. It is
located near the centre of Salisbury and overlooks the River
Nadder with views of the cathedral. It was introduced by one
of the Company's retained agents and has operated profitably
for a number of years. This well-established home serves the
top end of the market and most of its patients are private.
Downing (Acacia House) Limited
Acacia House is a care home registered for 47 beds of which 27
beds are nursing and 20 beds are residential. It is located
near Tenterden in Kent and was introduced to the Company by
Independent Healthcare Initiative. This care home is
virtually full and has planning permission to add an extra 5
beds.
Statement of total return (incorporating the revenue account)
for the period from 27 January 1997 to 30 June 1998
1998
Revenue Capital Total
#'000 #'000 #'000
Losses on investments - (60) (60)
Income 808 - 808
Management incentive fees (51) (51) (102)
Other expenses (36) - (36)
Return on ordinary activities
before tax 721 (111) 610
Tax on ordinary activities (190) 14 (176)
Return attributable to
shareholders 531 (97) 434
Dividends (491) - (491)
Transfer to/(from) reserves 40 (97) (57)
Return per ordinary share 5.4p (1.0)p (4.4)p
The Company commenced trading on 4 April 1997.
The revenue column of this statement is the profit and loss
account of the Company.
Net assets as at 30 June 1998
1998
#'000
Fixed Assets
Qualifying investments 2,535
Non-qualifying investments 6,642
Total fixed asset investments 9,177
Current assets
Debtors 477
Cash at bank and on deposit 207
684
Creditors: amounts falling
due within one year (597)
Net current assets 87
Net assets 9,264
Net asset value per ordinary share 94.4p
Unlisted investments are included at cost which, in the
opinion of the Directors also represents their market value at
30 June 1998.
Net asset value per ordinary share is based on net assets at
the period end, and on 9,811,961 ordinary shares, being the
number of ordinary shares in issue at the period end.
Revenue return per ordinary share is based on the net revenue
on ordinary activities after taxation, but before deduction of
dividends, of #531,000 in respect of 9,811,961 ordinary
shares, being the weighted average number of ordinary shares
in issue during the period since commencement of trading.
Capital return per ordinary shares is based on net capital
loss for the financial year of #97,000 in respect of 9,811,961
ordinary shares, being the weighted average number of ordinary
shares in issue during the period since commencement of
trading.
The final dividend for the period ended 30 June 1998 of 2.6p
per share (net) will be paid on 30 November 1998 to holders of
ordinary shares on the register at the close of business on 6
November 1998.
Copies of the full report and accounts for the period ended
30 June 1998 will be printed and issued to shareholders and
will be filed with the Registrar of Companies shortly. The
Company's Annual General Meeting will be held at 69 Eccleston
Square, London SW1V 1PJ at 11.00am on 30 November 1998.
Copies of this announcement will be available to the public at
the registered office, 69 Eccleston Square, London SW1V 1PJ.
By Order of the Board
Anthony McGing
Secretary
27 October 1998
END
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